I’ve been in the insurance business for over thirty years, and, while I am an ‘insurance nerd’, I realize most people don’t get excited about their commercial insurance policies. With the current state of the economy, businesses are carefully watching all their expenses. One might assume their insurance premiums are set with little or nothing that can be done to lower them, but that is not necessarily true. Here are a few tips that might help you and your business to evaluate your insurance program.
Understand the various factors that make up your insurance premium.
General Liability premium is often determined by estimated sales or payroll, and Workers’ Compensation premium is always determined by estimated remuneration (money or substitutes for money). Review these estimates and make sure they are accurate, especially if your business has slowed down or changed. Ask if reporting is an option where you “pay as you go” based on actual numbers instead of estimated.
Equipment (sometimes called Floater or Inland Marine) premium is usually based on the actual cash value of the equipment. Verify that the limits on the policy reflect the value of the equipment. Many insurance companies offer lower rates, typically called ‘stacked rates’, for large equipment (usually drilling or well servicing rigs) that are not in use.
If you can afford to lose it, don’t insure it.
Everyone has a different appetite for risk. Proof of this is all the gigantic casinos and resort hotels in Las Vegas. None of those were built with money from someone like me who can make $20 playing nickel slots last a long time!
When trying to decide if you need to insure something, whether it is equipment, physical damage coverage on vehicles, or office contents, compare the premium for that coverage to the money you would receive if you had a claim. A good example is physical damage coverage on vehicles. Vehicles depreciate rapidly, and typically the most you would receive if the vehicle was totaled is the actual cash value of the vehicle less the deductible. There are many websites you can use to get the approximate vehicle actual cash value. Compare that to the premium you are paying, plus your deductible, and decide if you need to keep that coverage.
It is not hard to determine the maximum possible loss for property, equipment and vehicles. What is very difficult, if not impossible, to predict is the amount of liability insurance that is needed. It is relatively inexpensive to increase your liability limits on your Umbrella policy. No sane person would cause or allow an accident on purpose, but accidents happen all the time. I could tell you horror stories of multi-million dollar judgments against businesses. Consider dropping or cutting back on some of your property and vehicle insurance, or increase your deductible, and use the premium savings to buy higher liability limits.
Think like a risk manager.
Insurance is one way to manage your risk. Another important part of risk management is to have procedures and training in place to avoid accidents. Your insurance agent and your insurance company should have many resources available to help you with this. Loss prevention not only keeps your costs down but helps to keep your employees safe.
Risk transfer is simply taking the risk you have and transferring it to someone else. Of course insurance is a form of risk transfer, but there are others. One example is using insured independent contractors. When you ask for their certificate of insurance, ask that they name you as additional insured with a waiver of subrogation on all policies, and ask for a 30-day notice of cancellation. Your attorney may also advise you to have a signed contract in place with independent contractors.
When it comes to insurance claims, there are two expressions I’ve heard my entire career. They are ‘claims make rates’ and ‘frequency breeds severity’. I know as a client it is frustrating that you purchase insurance and are advised to avoid turning in claims. My husband made a joke once that insurance is like marriage, you pay and pay and you never get anything out of it! All kidding aside, it is in your best interest to have a good claims history. In the long run, it will save you premium and possibly give you access to insurance companies with special programs for accounts with low claims. I’m not suggesting that you don’t turn in claims, but you should do what you can to prevent claims from happening.
Think beyond insurance.
Your insurance agent may offer services at little or no cost to you that add value to your insurance program. In addition to risk management/loss prevention services, there are many others that could be available. Some examples are Workers’ Compensation experience modifier verification and projection, independent claims advocate for difficult/complicated claims, and access to policy information as well as other services 24/7/365 online. If you don’t know what your agent offers, ask them.
Your agent is your best resource.
I can’t stress how important it is to communicate with your agent. Your agent is (or definitely should be) on your side. If you have concerns about your insurance costs, talk to your agent and partner together on finding solutions.